Now that Yahoo and Microsoft have taken the plunge into instant messaging (IM) interoperability, the next step is getting it to work.

While the technical aspects involved in getting two of the largest three IM networks to share information back and forth is daunting enough, it's the business challenges that will ultimately determine its success.

Earlier this month the two companies announced an interoperability pact, which will allow their IM users to talk to one another. This is a first for users of a major public IM network outside of an IM manager such as Trillian.

The companies said they will stick with basic functionality for now before attempting enhanced IM functions, such as video or voice communications.

Yahoo and Microsoft are targeting the second quarter of 2006 for the launch of the new service. Microsoft plans to test the service with the upcoming beta of MSN Messenger 8, though they aren't releasing any launch dates.

The first order of business is getting their IM networks to see each other and exchange information. If Yahoo and Microsoft used the same protocol for IM communications it would be a relatively simple affair to negotiate. However, both use proprietary protocols for handling their IM traffic.

Essentially, a layer will sit between the two IM networks and the servers will communicate with each other using a subset of the Session Initiation Protocol (SIP ) called the SIP/SIP for Instant Messaging and Presence Leveraging Extensions (SIMPLE).

Microsoft and Yahoo believe SIP/SIMPLE is the right way to approach their interoperability goal, though they are sticking with core functionality because SIP/SIMPLE hasn't been used at this scale before.

The concern, however, is that Microsoft might run afoul of its own enterprise IM (EIM) business with its public interoperability move. The Redmond, Wash., software company sells a component, the Public IM Connectivity (PIC), to its Live Communications Server (LCS) 2005 customer base. PIC allows LCS 2005 users to connect to AIM, MSN Messenger and Yahoo IM.

"Microsoft needs to keep one eye on Yahoo in terms of SIP and SIMPLE and what they need to do to get it integrated and onto scale," said Mike Gotta, an analyst at the Burton Group. "But on the other hand it has to turn around to the same protocol it uses in the enterprise to make sure enterprises are in sync with the standards they might be enhancing or extending."

Theoretically this SIP/SIMPLE layer under construction makes it possible for other IM networks -- AOL IM (AIM), Skype and Google Talk -- to plug in and chat as well, though industry politics will likely keep that from happening anytime soon.

Microsoft has been in a long-standing battle with AOL over instant messaging that dates back to MSN Messenger's initial launch in 1999.

While relations between the two companies over IM interoperability might have thawed since then, it's never gone beyond the exploration phase announced by AOL and Microsoft in 2003.

Microsoft's beef with Google, on the other hand, is reaching legend status. With Microsoft CEO Steve Ballmer's chair-throwing incident and vows to "kill Google" that surround recent company defections, Microsoft might not be inclined to extend an olive branch to the incredibly popular search engine that's steadily encroaching on its space.

Officials from both companies have been very reluctant to provide details of the specifics of the interoperability agreement, from either a business or technical perspective. However, a Microsoft statement hints that the company hasn't closed the door entirely on Google and the others.

During the Oct. 12 press conference announcing their deal, Microsoft and Yahoo executives said they were focused on interoperability between their two networks but might consider other public IM networks down the road.

A statement made later by Microsoft clarified the position slightly.

"We anticipate using SIP/SIMPLE standards to implement interconnection between our two networks," a Microsoft spokesperson said. "There may be other protocols to implement interconnection, and we are open to a dialogue on the best and most efficient technical solution which keeps consumer's privacy and security top of mind."

The industry climate is changing, said Mike Gotta, an analyst at the Burton Group, because Microsoft and Yahoo can now see the advantages in providing coordinated advertising campaigns and the like.

"The reason the public IM networks were slow to open themselves up was they wanted to monetize their base," he said. "Once the monetization of the base is threatened, all of a sudden they fall in love with each other. This creates a bigger duopoly and a bigger set of eyeballs in terms of a base to monetize."